The global energy landscape is undergoing a profound transformation. Centralized power stations are being replaced by decentralized distributed renewable energy sources, battery storage and localized generation at homes and businesses. This introduces increased complexity and data volumes and present significant challenges for managing supply and demand dynamics.
This is where Digitalization comes in. Digitalization enables decentralization with next generation solutions that bring the tools, automation and analytics necessary to manage the decarbonized energy system of the future.
As forward-thinking companies realize they need to engage in sophisticated energy contracting and trading transactions to serve their load efficiently, profitably and in a balanced fashion on a near real-time basis, they are committing to the digitization and automation of their processes and practices to navigate this environment.
Understandably, the first place to look is the existing Energy Trading and Risk Management (ETRM) system, as legacy systems have become unmanageable, inflexible and costly. However, meeting the need across the enterprise for market insights, innovative analytics, and real-time access, cannot be realized by simply replacing just the legacy ETRM system.
Additionally, integration and connectivity drive the digital transformation as enterprises strive to align their applications with each other to increase efficiency and visibility. This way data can be transformed into valuable insights, enabling to make informed decisions, while improving efficiency through automation of processes.
Energy Portfolio Management: A Holistic Approach
Energy Portfolio Management (EPM) is not a single system but rather a suite of composable, modular solutions that complement ETRM capabilities. By integrating EPM application functionality, energy companies can address the full range of operational, trading, and risk management needs.
Some key functionalities of EPM include:
- Market Insights & Analytics: Advanced analytics provide critical insights into pricing trends, generator attributes, transmission constraints, and weather impacts, helping traders make data-driven decisions.
- Forecasting: AI-powered load, production, and price forecasting enhance predictability in a world where renewable supply fluctuates.
- Asset Optimization: EPM solutions help optimize commitments, bidding strategies, and dispatching, minimizing production costs while maximizing profits.
- ETRM: The heart of any energy trading operation is its risk management strategy. ETRM systems help energy companies maximize the value of their trades while mitigating financial exposure. Advanced analytics with what-If scenarios, can assess market risks, monitor positions, and provide risk metrics to support decision-making.
- Market Communications & Compliance: Automated bidding, real-time market integration, and streamlined regulatory reporting ensure compliance with evolving market rules.
Two Case Studies of EPM solution
Profile: An international energy retail supplier
Sourcing its supply through trading bilaterally with Independent Power Producers (IPP) and Wholesale Traders and participates in regional organized wholesale electricity markets such as North American ISO/RTOs and the Irish Integrated Single Electricity Market (I-SEM).
Business Issue & Opportunity
Electricity used to be sold on longer term contracts, two or three years ahead, a strategy that mitigated risks when the market was less volatile. The transition from fossil fuels to renewable energy, makes supply and demand more challenging to balance because electricity production is increasingly going to be dependent on the weather. Today’s market requires responsiveness to market dynamics, to mitigate risk and compete profitably and reliably while maximizing revenues and optimizing operations. This requires robust underlaying technology and analytical systems that can understand what is happening, monitor and mitigate risk effectively and efficiently so companies can optimize their energy portfolios. Siloed systems lack the visibility and risk controls necessary for effective portfolio management and optimization.
Solution
Digitalization through the implementation of an EPM-based integrated solution comprised of a next generation ETRM system, delivered as cloud-based software-as-a-service solution, tightly integrated with market communication to automate and optimize all front and back-office workflows for ISO/RTO markets, thereby creating a seamless bid-to-bill platform, as well as built-for-purpose Renewable Energy Certificates (REC) management.
Impact & Outcomes
Reduced portfolio exposure resulting in lower capital allocations and credit facilities, thereby decreasing the cost of sourcing/trading. Digitalization allows integration which enables straight through processing and improved decision-making to support hedging, long term optimization to drive cost down, while offering an opportunity for trade opportunistically based on available market views and intelligence at the operator’s fingertips. As a result, the EPM solution created a predictable financial environment, commercially allowed to gain additional customers / counterparties for new revenue, while future-proofing its Trading IT.
Profile: Large integrated municipal energy service company
Operating power generation assets, gas storage assets, and serving electricity and natural gas to residential and business customers. In addition to self-generation, it participates in day-ahead, intraday, and balancing markets
Business Issue & Opportunity
The organization is depending on siloed spreadsheets, manual processes, and legacy systems that lack integration and adaptability to a fast-changing market. With energy supply becoming increasingly decentralized and weather depending, load, production and price forecasting is essential. Moreover, it needs to operate an entire portfolio at minimum cost across multiple market products and to make most of the generation assets it requires informed and optimized physical trading decisions while complying with plant, portfolio, and system-level constraints. Without integration and streamlining for increase efficiencies, speed, and visibility, the company cannot play in the present and upcoming markets the way it currently works. It must reduce financial and operational risk, improve stability and flexibility of its trading operations. To continue to meet current and future market requirements as well as managing cost pressures, the legacy systems for needed to be replaced.
Solution
Embark on a digitalization and automation project by implementing an EPM-based integrated solution, encompassing a next generation ETRM supporting a multi-commodity portfolio (power, gas, fuels, environmental) with specialized tools for forecasting, asset optimization, market communications, and REC management, thereby reducing the number of disparate systems and improve automation to support the Digital Utility goal.
Impact & Outcomes
Realization of the digitalization and automation objectives, with a highly automated front-to-end trade life cycle, risk management and position management enabling optimal decision-making in planning, utilization, and business operations, while maximizing asset value.
No longer nice to have
As legacy systems fail to evolve and system limitations are hit, dozens of spreadsheets, isolated home-grown applications or manual workarounds spring up to help with handling those functions outside the main system. Consequently, those non-integrated workarounds can’t deliver. Management doesn’t get their information for proper decision-making, audit trails are lost, and compliance reporting lacks while the cost for staff to perform manual work grows. Frustrations mount over legacy system complexities, unacceptable maintenance costs, system integration issues, changing analytics and reporting needs, compliance risks, and being unable to make quick course changes.
These energy companies have reached a technology tipping point. They realize that maintaining their legacy systems—which they once did to save money and avoid the operational risk of a core transformation—has become too expensive and a competitive liability. Energy companies cannot afford to rely on outdated systems. The impact in terms of revenue and cost savings is substantial.
Today’s volatile energy markets require an EPM approach, combining real-time analytics, automation, and seamless integration with ETRM to help provide timely answers to fundamental questions about supply and demand, portfolio performance, valuations, and profit and loss enabling the flexibility, efficiency, and strategic advantage needed for success in the energy transition.
Replacing legacy ETRM systems with newer versions is only part of the solution. A holistic approach, incorporating EPM solutions, is critical for managing the complexities of modern energy markets. By leveraging a modular and composable EPM framework, energy firms can unlock value, improve decision-making, and drive profitability in the face of evolving market dynamics. The future belongs to companies that embrace Energy Portfolio Management as the key to success in a decarbonized, digitalized, and decentralized energy world.
